Britannia Radio

Today’s round-up of information and opinions on the deepening of 
Brown’s crisis.

This is a generalised tale of horror and woe and as  it’s quite long 
enough already ,  I’ll search no more!!!

But to illustrate just how seriously the government takes the crisis 
see  today’s “The Sun Says: "How do MPs react to the world collapsing 
around their ears? By working round the clock questioning and probing 
the Government to make sure they are doing the right thing? By 
sacrificing their weekends to give their own brilliant ideas to 
ministers? Er, no. Commons authorities have decided it would be best 
if our representatives took an extra week’s holiday at 
Christmas . . . giving them three and a half weeks off."

And it’s for working so hard they get guaranteed, inflation-proofed 
pensions!   It's alright for some!

xxxxxxxxxxxxxxx cs
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TELEGRAPH   20.10.08
1. Government borrowing at highest level since 1946
Public sector borrowing reached its highest level since 1946 in the 
first six months of the financial year, even before the Chancellor 
begins implementing a strategy to spend his way out of the economic 
downturn.

    By Angela Monaghan

Borrowing was £8.1bn in September, taking the total to £37.6bn in the 
first half of the year, some 75pc higher than at the same point last 
year, and the highest since records began when Britain started 
rebuilding the country after the Second World War.

It was significantly higher than the £6.6bn monthly figure expected 
by economists, who described the unexpected jump as alarming.

Borrowing rose as tax receipts from stamp duty, corporation tax, 
national insurance and excise duties were all weak as the UK stood on 
the brink of recession. Receipts rose 1.9pc from April to September 
compared with the same period a year earlier, well below the 5pc 
level required to hit the Chancellor's Budget forecast.

Central government spending growth on the other hand was strong. It 
grew by 6.1pc in the first half, more than the Chancellor's full-year 
forecast for a 5.3pc increase.

The budget deficit was £5.9bn in September, taking the first half 
deficit to £25.2bn - almost double last year's first half deficit of 
£13.1bn.

Alistair Darling's original forecast that full-year borrowing would 
reach £43bn now looks even further out of reach, and some economists 
now predict that the total will surpass £60bn.

The high level of borrowing coincides with a time of economic turmoil 
in the UK, limiting the amount the Treasury can strengthen the public 
coffers through tax rises.

The Chancellor said in an interview with The Sunday Telegraph that he 
would not limit public spending and would instead bring forward some 
public sector projects to support the UK's faltering economy.

That will take the Treasury closer to breaking one of its own 
sustainable borrowing rules, which dictates that the government's net 
debt must not exceed 40pc of gross domestic product.

David Cameron warned this morning that the Government's approach 
threatened to restrict the Bank of England as it seeks to boost the 
economy by cutting interest rates.
“If you have a big deficit, as we do, if you then go on a further 
splurge and make it larger, everybody knows that means taxes are 
going to go up in the future so they behave accordingly, and also the 
Bank of England will be more reluctant to reduce interest rates,” he 
said

Instead, the Conservative leader backed a cut in National Insurance 
payments for small businesses as the best way to limit the fallout 
from a likely recession.

The total amount of net debt owed by the Government rose to 37.9pc in 
September, excluding the cost of nationalising Northern Rock, up from 
37.3pc in August, according to the Office for National Statistics 
figures. The figure including the nationalisation of Northern Rock is 
43.4pc.
"Clearly, the Chancellor's aim back in the March budget to keep the 
PSNBR down to £43bn in 2008/09 and the current budget deficit down to 
£10.0 billion has been blown out of the water big time," said Howard 
Archer, chief economist at Global Insight.

The September borrowing figures do not take into account the 
government's part nationalisation of Royal Bank of Scotland, Lloyds 
TSB and HBOS last week.

On Friday official figures are expected to show that the economy 
shrank for the first time since 1992 in the third quarter, putting 
the UK almost certainly on track for a technical recession - two 
successive quarters of contraction - by the end of the year.

The sharp economic deterioration in recent weeks is exacerbating 
fears that the downturn in the housing market will be prolonged and 
deep. Figures published by the Council for Mortgage Lenders show that 
mortgage lending fell 42pc last month, compared with September last 
year, at £17.7bn.
Lending declined 10pc in the month from August to September.
================

AND

2. WORST SLUMP SINCE GREAT DEPRESSION
    Edmund Conway, Economics Editor
The economic crisis will cause Western nations to suffer their worst 
year of growth since the Great Depression, experts warned. amid signs 
that the financial turmoil has spread to previously untouched parts 
of the world.

Major industrial economies will suffer the worst slump since the 
1930s , according to new research from Deutsche Bank. The warning 
underlines the fact that policymakers have failed to prevent the 
financial crisis from turning into a full-blown economic slump. It 
comes as world leaders agreed to hold a summit in New York billed as 
the “Bretton Woods meeting for the 21st  century”.

In its major assessment of the global economy’s health, Deutsche 
Bank. also warned that Britain is even moire vulnerable than the US 
or the euro area, as it predicted that the powerhouses of India an d 
China would fail to support the wider global economy through the 
downturn .

The bank’s economists, Thomas Mayer and Peter Hooper said “We now 
expect a major recession for the world economy over the year ahead,   
with growth in the industrial countries falling to its lowest level 
since the Great Depression and global growth falling to 1.2pc, its 
lowest level since the severe downturn of the early 1980s.

According to the International Monetary Fund, global growth of 
anything less than 3pc constitutes a world recession.  The warning 
was echoed by richard Berner, of Morgan Stanley, who said “A global 
recession is now under way and risks are still pointed to the 
downside for commodity prices and earnings.”

(- - - - Rest is about preparations for the New York G8 meeting)

================

AND

3. Do our rulers know enough to avoid a 1930s replay?
Events are moving with lightning speed as the global credit freeze 
evolves into something awfully like a classic trade-depression.

    By Ambrose Evans-Pritchard

The commodity and emerging market booms are breaking in unison, 
leaving no more bubbles left to burst. Almost every corner of the 
world is now being drawn into the vortex of debt deflation.

The freight rates for Capesize vessels used to ship grains, coal, and 
iron ore have fallen 95pc to $11,600 since May, hence the bankruptcy 
of Odessa’s Industrial Carriers last week with a fleet of 52 vessels. 
Cargo deliveries dropped 15.2pc at the US Port of Long Beach last 
month, but that is a lagging indicator.

From what I have been able to find out, shipping is slowing as fast 
as it did in the grim months of late 1931. “The crisis is now in full 
swing across the entire world,” said Giulio Tremonti, Italy’s finance 
minister. “It is hitting the real economy, the productive forces of 
industry. It’s global, it’s total, and it’s everywhere,” he said.

Italy’s industrial output has fallen 11pc in the last year. Foreign 
orders have dropped 13pc. But we are all in much the same boat. 
Europe’s car sales fell 9pc in September (32pc in Spain). US housing 
starts fell to a 45-year low in September.

Last week, the International Monetary Fund had to rescue Hungary and 
Ukraine as contagion swept Eastern Europe. It would not surprise me 
if Russia itself were to tip into a downward spiral towards 
bankruptcy (again) and fascism (again).

Russia’s foreign reserves have fallen by $67bn since August. Ural 
crude prices fell to $65 a barrel last week, below the budget 
solvency threshold of the now extravagant Russian state.

The new capitalists have to repay $47bn in foreign loans over the 
next two months. In Russia, oligarch fiefdoms built on leverage - 
Mikhail Fridman (Alfa), Oleg Deripaska (Basic Element), and Vladimir 
Lisin (Novolipetsk) - are lining up for state bail-outs from a $50bn 
rescue fund.

Brazil is free-fall as well. Sao Paolo’s Bovespa index is down a 
third in dollar terms in a month. Hopes that the BRIC quartet 
(Brazil, Russia, India, and China) would take over as the engine of 
world growth have proved yet another bubble delusion.

China says 53pc of the country’s 3,600 toy factories have gone bust 
this year. Economist Andy Xie says China is at imminent risk of its 
own crisis after allowing over-investment to run rampant, like Japan 
in the 1980s. “The end is near. They’ve been keeping this house of 
cards going for a long time with bank support,” he said.

Lord (Adair) Turner, the head of Britain’s Financial Services 
Authority, offers soothing words. “There is no chance of a 1929-33 
depression. We know how to stop it happening again,” he said.

I hope Lord Turner is right, but his Olympian certainty bothers me. 
It assumes that the economic elites
a) understand what happened in the 1930s – on that score I suspect 
that few, other than the Fed’s Ben Bernanke, have delved into the 
scholarship (sorry, Galbraith’s pot-boiler The Great Crash does not 
count);

b) that central banks will now jettison the dogma of inflation-
targeting that got us into this mess by lulling them into a false 
sense of security as credit growth and housing booms went mad. Will 
they now commit the reverse error as credit collapses?

c) understand that non-US banks – especially Europeans – have used 
the shadow banking system to leverage a $12 trillion (£7 trillion) 
spree around the world, and that this must be unwound as core bank 
capital shrivels away;

Yes, the Fed made frightening errors in the early 1930s by raising 
rates into the crisis, but they were constrained by the norms of the 
age: the fixed exchange system (Gold Standard), and fear of the bond 
markets. Are today’s central banks are doing much better? The 
Europeans fell into the trap of equating this year’s oil and food 
spike with the events of the early 1970s.

As readers know, I view European Central Bank’s decision to raise 
rates to 4.25pc in July – when Spain’s property market was already 
crashing, and Germany and Italy were already in recession – as replay 
of 1930s ideological madness.

You could say the ECB also acted under the constraints of the age: 
its rigid inflation mandate. But I suspect that Bundesbank chief Axel 
Weber and German finance minister Peer Steinbruck were quite simply 
too arrogant to listen to anybody.

Mr Steinbruck insisted that “German banks are far less vulnerable 
than US banks” just days before the collapse of Hypo Real with €400bn 
(£311bn) of liabilities. Had he not read the IMF reports showing that 
German and European lenders have an even thinner Tier 1 capital base 
than American banks?

One can only guess what French President Nicolas Sarkozy has been 
saying to ECB chief Jean-Claude Trichet, but he must have warned in 
blunt terms that Europe’s leaders would exercise their Maastricht 
powers to bring the bank to heel unless it slashed rates. Democracies 
cannot subcontract monetary policy (with all its foreign policy 
implications) to committees of economists in a fast-moving crisis. 
Those accountable to their electorates have to take charge.

Whatever occurred behind closed doors, the ECB is now tamed. It has 
cut rates to 3.75pc, and will cut again soon, perhaps drastically. 
The risk is that rates have come too late in Europe and Britain to 
stop a nasty denouement, given the 18-month lag on monetary policy.

We should be thankful that President Sarkozy and Gordon Brown took 
action in the nick of time to save our banking systems. Their 
statesmanship should at least spare us mass bankruptcy and unemployment.

But it will not spare us a decade-long toil of pitiful growth – or 
none at all – as we purge debt. The world stole prosperity from the 
future for year after year, with the full collusion of governments, 
regulators, and central banks. Now the future has arrived.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
OTHER TELEGRAPH HEADLINES
== No recovery before 2011
Family finances, high street spending and the housing market will not 
recover from the financial turmoil for three years, according to an 
influential report.
== Coping with negative equity
More than 300,000 homes are now in negative equity.
== Investors fearful over dividend ban
An army of small investors, many of them elderly, will struggle to 
pay day-to-day living expenses if the Government goes ahead with its 
plan to freeze dividend payments to shareholders in banks taking 
state aid
==French bank chiefs resign over trading scandal
The fate of the chairman and top executives at Caisse d’Epargne hung 
in the balance after the French savings bank lost close to £500m in a 
derivatives trading scandal.
===========================
THE TIMES   20.10.08
Darling 'splurge' would hurt economy, say Tories

    Philippe Naughton

The Tories have attacked Alistair Darling's plans to pour billions 
into public works to help Britain through a recession as official 
figures showed government borrowing is already running at record levels.

The Chancellor said yesterday that he was willing to bring forward 
spending on major works in a Keynesian attempt to prime the economic 
pump during the global downturn.

But David Cameron, the Conservative leader, responded today by saying 
that an inflationary spending "splurge" would only put at risk the 
interest rate cuts needed to bring the economy back into the black. 
Instead, the Tories want targeted measures, such as a VAT holiday and 
National Insurance reductions for small firms.

“In politics you only have a certain amount of time and capital to 
expend – spend it on the things that will make a difference," he told 
BBC Radio 4's Today programme.

Mr Cameron's case was underlined by figures showing public sector 
borrowing at record levels even before the recession officially begins.
The Office for National Statistics said that the public sector posted 
a net cash requirement of £12.65 billion in September, compared with 
a deficit of £8.72 billion in the same month last year. The 
Government’s preferred measure, public sector net borrowing or PSNB, 
came in at £8.09 billion, also a record for the month of September, 
and compared with £4.78 billion last year.

That left the cumulative PSNB for April to September, the first half 
of the financial year, at £37.59 billion, more than the amount 
borrowed over the whole of the previous year and the highest half-
year total since records began in 1946.

Emboldened by the worldwide praise for the UK's bank rescue plan, Mr 
Brown has displayed more of a willingness in recent weeks to take the 
fight to the Tories. The idea of ramping up official spending during 
a recession has a clear, if unspoken, political benefit in that it 
would leave Conservative spending plans in disarray ahead of the next 
election.

Mr Cameron said: “If you have a big deficit, as we do, if you then go 
on a further splurge and make it larger, everybody knows that means 
taxes are going to go up in the future so they behave accordingly, 
and also the Bank of England will be more reluctant to reduce 
interest rates.
“And if we are actually looking at what puts money back in people’s 
pockets, it is actually those interest rate reductions that feed 
through into lower mortgage payments and that’s what people 
desperately want. If the Government behaves stupidly they won’t get 
them.”

Mr Cameron will hold a summit with small business leaders in the 
House of Commons today to discuss his proposals, which also include 
calling on local authorities to pay small businesses for their 
services within 20 days, rather than 30.

Under the Tory proposals, businesses with fewer than five employees 
would have the rate of employers’ National Insurance that they pay 
cut by 1p for at least six months. The party said a firm with four 
workers and an annual wage bill of £150,000 would save more than £100 
a month or the equivalent of 15 per cent interest on an £8,000 
overdraft.

It would be paid for, alongside a cut in corporation tax rates for 
small firms to 20p, by abolishing reliefs and allowances introduced 
by Labour.

The Tories, who have also proposed a short-term VAT holiday for small 
firms, [See earlier “Cameron doesn't do his homework!” -cs] 
calculated the cost of the National Insurance move to be around £225 
million over six months.

Mr Cameron said that firms of up to 250 employees would benefit from 
the six-month VAT bill delay. He said it was “not entirely clear” 
whether the Government was intending to increase public spending or 
simply bring forward projects.

According to the latest ONS figures, the economy registered zero 
growth in first quarter of the year. But a respected forecasting 
group said today that it was already in recession, for the first time 
since 1992, and would shrink next year.

The Ernst & Young ITEM Club, which uses the Treasury’s economic 
forecasting model, said the credit crunch will hit the UK “very hard” 
even if recent bank rescues restore calm to the financial system.

House prices will be 14 per cent below their 2007 peak by the end of 
the year and tumble a further 10 per cent in 2009 before stabilising 
in 2010, it added.

The ITEM club forecasts the economy will shrink for three further 
quarters before bottoming out in the second half of next year, and is 
looking for a weak recovery in 2010.

The group's chief economist, Peter Spencer, said: “We now have to 
face up to the reality of an economy that has been seriously weakened 
by recent dramatic events. The effects of the credit crisis are 
spreading out from the financial and housing sectors and impacting 
every part of our domestic economy.”
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